TMI Blog2016 (9) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... s chargeable to tax under the head ‘Income from capital gains’ under Chapter IV-E of the Act. Needless to say that the A.O. shall provide proper and adequate opportunity of being heard to the assessee in accordance with the principles of natural justice in accordance with law. - I .T.A. No.5075/Mum/2010 - - - Dated:- 27-7-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri Mukesh Jain, DR For The Assessee : Miss Aarti Sathe ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Revenue, being ITA No. 5075/Mum/2010, is directed against the order dated 29-03-2010 passed by learned Commissioner of Income Tax (Appeals)- 35, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2007-08, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 29-12-2009 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue before Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) in the memo of appeal filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was observed by the AO that the gain/loss should have been treated as capital gain/loss. However, the assessee treated the sale of such land as business transaction and took it into P L account and there was no trace of conversion of capital asset into stock-in-trade as there was no income/loss shown under the head capital gain. The assessee was show caused as to why u/s 50C of the Act , the market value should not be taken for the purpose of gain on sale of land. In reply, it was submitted by the assessee that the land is held as stock-in-trade. The assessee relied on the decision of Hon ble Madras High Court in the case of K.R. Palaniamy v. Union of India reported in (2009) 306 ITR 61 (Mad.). The assessee further submitted that the assessee is in the business of development of property of every description of land and other real estate property. The partnership firm is carrying on the above business since 1980 and has been assessed to tax as such and the Revenue has accepted the contentions of the assessee and whenever the assessee has sold land along with development rights, the same has been treated as business income. The assessee submitted that the properties mentioned in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember,2009 which reads as under:- RAJU C. JOSHI ASSOCIATES Chartered Accountants G/722, SUNDERDHAM, RAMBAUG LANE, OFF S. V. ROAD, POISAR, BORIVALI (WEST), MUMBAI - 400 092. TEL NOS: 91-22-2808 1948,2807 1484. MOBILE: 09324371484 e-mail: rajucjoshi@mtnl.net.in.rajucjoshi@gmail.com The Assistant Commissioner of Income Tax Circle 25(3), Bandra, Mumbai Respected Sir, Re: Tax Audit Report for the year ended March 31, 2007 in the case of M/s Dattani Developments (PAN: AABFD4969Q) With reference to the above we like to draw your kind attention to the reply against Clause 12(a) of the above referred Tax Audit Report for the year ended March 31, 2007, wherein it has been stated that the above referred assessee does not have any closing stock and in case of Joint Ventures the closing stock in trade of land is valued at cost. We wish to clarify that the referred assessee are builders, developers and dealers in real estate and they did not have any closing stock of Finished Goods as on March 31, 2007, hence the remark against the said clause. The referred assessee has always held land for the purposes of development/sale and treated the same as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true as is evident from the audit report. The stock mentioned in the audit report is of joint venture undertaken by the assessee. The A.O. observed the following:- On perusal of the partnership deed of the firm, the following is observed:- The business of partnership is and will be to undertake, execute and to purchase land and to construct the building or buildings thereon and carry on the contract works of construction of building structures, canals, irrigation, bridges, factories, workshop warehouse, industrial estate factory sheds and also the work of sites supervision of construction work on percentage basis etc. Thus it was observed by the AO that it was not mentioned in the partnership deed that the assessee was in the business of sale/purchase of land. The assessee is only purchasing land for construction to be undertaken and hence the assessee s submission was not correct as per the observations of the AO. The assessee has not carried out any developmental work as no IOD/CC was taken for the said land to develop any project on it whereas the IOD(Intimation of disapproval) and CC(Commencement Certificate) were the preliminary requirement for developing a project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me barred on 31st December, 2009 and proper valuation could not be done in such a short period of time. Thus, it was observed by the A.O. that the land which was sold during the year was a capital asset and the tax thereon should be computed u/s 50C of the Act and the gain thereon shall be short term capital gain since the deed of confirmation was executed in the assessment year 2007-08 itself and the following computations as per section 50C of the Act was made by the AO vide assessment order dated 29-12-2009 passed by the AO u/s 143(3) of the Act, which are as under:- Name of buyer Price at which sold (Rs.) Value as per valuation authority (Rs.) Difference amount (Rs.) Rushi Construction 30,00,000 1,84,13,500 1,54,13,500 Nitesh Enterprises 10,00,000 50,38,000 40,38,000 Kiran Patel Education Trust 18,00,000 1,16,55,000 98,55,000 Total (difference) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the property which shows that the intention of the assessee was to use the property for business purpose. It was submitted that merely because the advances paid to the owners were shown under the head investment in property , the A.O. applied section 50C of the Act whereas in respect of other properties shown under the head investment the assessee admitted business income. It was submitted that the intention of the assessee is very clear from the sale agreement and it is not to be seen from the balance sheet in which the same is shown as an asset and the mere nomenclature used in the balance sheet would not alter the nature of property and the same is to be gathered from the purchase agreement dated 15th August, 1994 and keeping in view the principle of consistency , the profit/loss is to be assessed only under the head income from business. Without prejudice, the assessee contended that the assessee entered into only development agreement on 17th February, 2007 based on which the A.O. applied provisions of section 50C of the Act ignoring the fact that it was not an absolute sale deed. It was further contended by the assessee that the assessee signed the development agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet Home and Mr. Rebello and others had executed power of attorney dated 29th December, 1979 in favour of M/s Sweet Home . The AO observed that the property was not in the possession and occupation of Mr. Rabello and others. There was no approach road . The learned CIT(A) observed that the above defects in the land is clear from the various clauses of agreement dated 15th August, 1994 which are reproduced as under:- (h) Sunder Shankar Thakur, Moreshwar Shankar Thakur, Raghunath Shankar Thakur and Laliya Heera Shoir claim to be the tenants (Kuls) of the said property. (i)The Vendors have informed the purchasers that under the revised development plan of R ward sanctioned by the State Government in the year 1993, the portion of the property is reserved for public purpose of garden as shown washed in green on the plan annexed thereto , for secondary school as shown washed in red on the plan annexed hereto, for the purpose of housing for dishoused as shown washed in orange on the plan annexed hereto, for junction of D.P.Road and 44 wide D.P.Road as shown in burnt sienna colour on the plan annexed hereto, rest of the said property can be used for the purpose of residence. (l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was to deal with and settle the claims of the said tenants/Kuls and the venders shall not be responsible for the same. Thus, it was observed by the learned CIT(A) from the various clauses of the agreement that the land was purchased only for the purpose of constructing flats/shops, garage etc. and not with an intention to hold it as an investment. The learned CIT(A) observed that the intention of the assessee regarding the head of income in which profit is assessable is to be gathered from various clauses of the agreement and not based on the nomenclature used in the balance sheet and although the assessee had shown the expenses incurred only under the head investment in properties in the balance sheet but this alone will not decide the nature of asset as to whether it is business or investment. The income of the assessee has been assessed to tax under the head business in the earlier years, which was not disputed by the A.O. In the assessee s case, the profit and loss has consistently been assessed under the head business and there was no reason to change the same in this assessment year. The ld. CIT(A) observed that the contention of the A.O. is in-correct that the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 50C of the Act is applicable to transfer of land or building or both. The learned CIT(A) directed the A.O. to delete the addition of ₹ 2,49,20,949/- made by the A.O. under the head capital gains and directed the AO to accept the income/loss offered by the assessee under the head business vide appellate orders of the learned CIT(A) dated 29-03-2010. 6. Aggrieved by the appellate order dated 29-03-2010 passed by the learned CIT(A), the Revenue is in appeal before the Tribunal. 7. The ld. D.R. submitted that the assessee has transferred land during the previous year which was held as capital asset by the assessee since 1994 and the ld. CIT(A) erred in deciding that the section 50C of the Act is not applicable for transfer of development right and deleting the addition of ₹ 2,49,20,949/- made by the AO under the head capital gain and accepting the income offered by the assessee under the head income from business. The ld. D.R. contended that the A.O. rightly treated the transfer of land as capital asset u/s 2(14) of the Act and brought to tax gains arising there-from under the head income from capital gain by applying the provisions of Section 50C of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and the stamp duty valuation which is brought to tax by the Revenue under the head income from capital gains after providing for deductions on account of cost of acquisition/improvement etc.. It was submitted by learned DR that the ld. CIT(A) erred in accepting the gains on sale of land as offered by the assessee as business income. The ld. CIT(A) relied on the decision of the Tribunal in the case of Smt. Kishori Sharad Gaitonde for the assessment year 2005-06 dated 27th November, 2009 to come to the conclusion that Section 50C of the Act is not applicable in the case of transfer of development rights. It is submitted by learned DR that section 50C of the Act is applicable on transfer of developmental right. The A.O. has rightly applied the provisions of section 50C of the Act to the transfer of development rights executed by the assessee. The ld. DR relied on the decision of the ITAT, Mumbai in Arif Akhtar Hussain v. ITO reported in 45 SOT 257(Mum). It is submitted that the assessee vide agreement dated 17th February, 2007 entered into with Rushi Construction for transfer of development rights wherein the total consideration was ₹ 30 lacs and as against the sale consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the property when the assessee acquired interest in the said land. There were tenants/Kul in the property. The title of the property had several encumbrances and defects and hence the assessee who acquired interest in the land vide agreement dated 15-08-1994 was not owner of the said land. The ld. Counsel for the assessee drew our attention to the copy of purchase agreement dated 15th August, 1994 with the owners which is placed at paper book page No. 1 to 94. The ld. Counsel submitted that there is an agreement with Kiran Patel Education Trust entered into on 19th January, 1997 by the assessee, copy of which is placed at paper book page No. 95 to 117 whereby the development right has been sold/ transferred to Kiran Patel Education Trust by the assessee and the consideration was received. The said land was earlier shown as investment in the books of account since acquisition in 1994 but the gain arising from sale of land to Kiran Patel Education trust was charged to tax as business income. Although, the business of the assessee is development of land while the land was shown as investment in its books of accounts/Balance Sheet. The assessee has placed copy of assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent right and the learned CIT(A) has rightly brought to tax income arising from transfer of development rights as business income. The learned counsel for the assessee relied upon the orders of the learned CIT(A). The learned counsel for the assessee relied upon the following decisions:- 1. ITA No. 2519/Ahd/2009 for A.Y. 2006-07 order dated 13.4.2012 in the case of ITO v. Shri Yasin Moosa Godil 2. ITA No. 1561/M/09 for A.Y. 2005-06 order dated 27.11.2009 in the case of Smt. Kishori Sharad Gaitonde v. ITO 3. ITA No. 1459/Kol/2011 for A.Y. 2008-09 order dated 29.2.2012 in the case of DCIT v. Tejinder Singh. 4. In the case of Atul G. Puranik v. ITO in ITA No. 3051/Mum/2010 for A.Y. 2006-07 order dated 13.5.2011 (2011) 58 DTR (Mumbai) (Trib) 208. Thus, it is submitted that the assessee is engaged in the business of builders and developers. The assessee is not the owner of the land. The assessee has sold the development right as part of its business and income is to be assessed as business income and provisions of Section 50C of the Act has no application . The learned counsel for the assessee has also submitted written submissions to distinguish the case laws relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also handed over possession to them . The said Sweet Homes made part payments under the said agreement to sale executed by Rebello family in favour of Sweet Homes in the year 1979. The Rebello family had also executed the power of attorney in 1979 in favour of Sweet Homes with respect to this land. The said agreement to sale entered into between Rebello family and Sweet Homes in the year 1979 was not yet been cancelled by the Sweet Homes . There was also no approach road as well no right to way /access with respect to the afore-said land. It was also in the new revised development plan of R ward sanctioned by the State Government in the year 1993 whereby the portion of the property was reserved for public purposes of garden, secondary school, houses for dishoused , roads as well for residential purposes. The assessee had also not undertaken any development or construction of the building on the said land since it acquired interest and title in the land in the year 1994 till the date of sale by the assessee. No approval was even taken by the assessee from the Government for development of the said land or construction of building thereof since interest and title in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of several encumbrances and defects in the title of the land with which the land was saddled with , but the assessee was fully aware that the assessee can earn profits from this investment in land by way of appreciation in the value of land with efflux of time as well with removal of defects and encumbrances with which land was saddled with keeping in view also that the development plan of R ward was sanctioned by the State Government in the year 1993 whereby there was reservation earmarked for some portion of this land for secondary school and residential zone . Thus, we are of the considered view, the investment was made by the assessee in the year 1994 for acquiring this land from Rebello family as investment for long term basis by the assessee knowing fully well that the land is suffering from several encumbrances and defects in its title as set out above , with an objective to make long term gains on appreciation in value of land due to efflux of time and also by removing defects and encumbrances in the land. The assessee was also fully aware that there was no possibility of development and construction of building on the land in the immediate near future due to several enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsed by us vide this order by holding that the gains arising from sale of this land are long term capital gains and not short term capital gains as held by authorities below as the interest and title in the land was acquired by the assessee in the year 1994 itself and held by the assessee for more than thirty six months in accordance with provisions of Section 2(29A) read with Section 2(42A) of the Act . However, the assessee has contended during the assessment proceedings before the AO that if the A.O. is adopting the valuation as adopted by stamp duty authorities by applying provisions of Section 50C of the Act, the assessee in that case is challenging the valuation done by stamp duty authorities and requested the A.O. to refer the matter to DVO u/s 50C(2) of the Act for finding out the correct value of the land so sold by the assessee which in-fact is the mandate of Section 50C(2) of the Act , and in our considered view the assessee rightly exercised its right and invoked the provisions of Section 50C(2) of the Act to refer the matter to DVO albeit this plea was taken by the assessee for the first time on 23-12-2009 which was at the fag-end of the assessment proceedings u/s 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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